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August 11, 2005
Economy and Household Income: Indicators of Foreclosure
American home mortgage loans that end up foreclosing come mostly from the midsection of the U.S. Even though statistics for foreclosure were down in 2004, according to Foreclosure.com, this news does not show how certain parts of the US are increasingly filing for foreclosure. Granted, foreclosure figures have finally leveled off after several downward years. In fact, this leveling is attributed to a better economy in the U.S. according to Mortgage Bankers Association of America. However, this picture leaves out the fact that the midsection of America is experiencing foreclosures at an alarming rate. Why is this happening in only these areas?
To understand this problem, you first should recognize that foreclosure numbers are pretty useful gauges of what's happening to household incomes and the economy as a whole. Experts use these figures to measure the overall health of the economy and if household income is keeping up with inflation. When these two areas are in check, foreclosures numbers are low. But, when a household's income is stagnant or increases slower than inflation, then more homeowners are forced to resort to foreclosure to solve their financial troubles. This reason along with several other behind-the-scenes reasons also forcing people in the middle part of America to file foreclosures:
* Lots of job cuts force the recently laid off homeowners to fall behind in home mortgage payments, eventually leading to foreclosure.
* Over-inflated home prices usually cause big monthly home mortgage payments. Too big of a monthly home mortgage compared to income often means high risks for foreclosure.
* Lending practices are often the cause behind increased foreclosures. Homeowners that shouldn’t qualify for big home mortgage loans are able to qualify for second mortgages and other types of loans that are very difficult for this homeowner to afford and eventually look for a way out through foreclosure.
A foreclosure means good things to a smart investor who's poised to buy up the property and make a profit. For a homeowner in financial troubles, this can seem like an ideal situation compared to going through with a foreclosure. The problem with today's foreclosure market is many of these places are in such poor condition that it may not be worth fixing up the properties. Also, many of these foreclosure properties are located in undesirable locations that many investors don't want to come near. Even though some consider foreclosure investors as vultures, these agents can help pick up a struggling economy and help some people's financial future. These agents end up negotiating prices on the property with banks for less than prime market prices. In the end, the bank benefits by not hiking up interest rates to cover these risks and losses.
According to CNN Money Real Estate Online, the top ranked counties of the U.S. with reported foreclosures in 2004 are for the most part down the center part of the nation:
1. Wayne County, MI (Detroit)
2. Cook County, IL (Chicago)
3. Marion County, IN (Indianapolis)
4. Dallas County, TX (Dallas)
5. Shelby County, TN (Memphis)
You can view a list of all foreclosed properties in the US
at http://www.ushud.com.
Copyright 2005 Gillian Confait. All rights reserved.
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Gillian Confait is the webmaster of Foreclosure/a> Phd, a leading on-line resource for information relating to foreclosures on the web. For more information visit her archive of articles: http://www.foreclosure.com/
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Posted by ben at August 11, 2005 12:22 PM